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Agreement of sale

Agreement of sale is a money term you need to understand. Here’s what it means.

What is an agreement of sale?

An agreement of sale is a legal document that outlines the terms of a real estate transaction. It lists the price and other details of the transaction, and is signed by the seller and the buyer.

An agreement of sale is also known as the contract of purchase, contract for sale, contract agreement or sale agreement.

Deeper definition

An agreement of sale is a contract to transfer property. Even after both parties sign the agreement, the property hasn’t changed hands, and the deed isn’t in the buyer’s name.

In many cases, the property still won’t legally become the buyer’s until he or she pays the entire purchase price, which could take years. Even so, the buyer still might take possession of the property while paying for it.

For example, a buyer and seller might use this method if the buyer doesn’t have the money to pay in full. If the seller doesn’t need all the money or doesn’t mind letting the buyer live on the property while paying for it, they could draw up an agreement of sale to make the arrangement clear and to protect both parties.

To be sure, an agreement of sale is often used in seller financing, when the seller lends money to the buyer to pay for the house. This type of deal might occur if the buyer can’t qualify for a traditional mortgage.

Under this arrangement, the owner retains ownership of the home while the buyer makes monthly payments just as he or she would make to a mortgage lender. When the purchase amount is paid off, the seller signs the deed over to the buyer.

Agreement of sale example

Larry wants to sell his house. He owns it free and clear, and doesn’t need the entire purchase price upfront. Derrick is interested in buying the home, but he doesn’t have the entire amount of Larry’s sale price and is having trouble getting a mortgage.

To get the deal done, Larry writes an agreement of sale, outlining the transaction, including the purchase price. He keeps the deed to the property while Derrick makes monthly payments. Once Derrick has paid off the amount listed in the agreement, Larry will transfer the deed to the house to Derrick.


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